Have you ever eaten out in Little Rock? Ever rented a meeting space in Conway? Ever bought a cup of coffee in Hot Springs? Odds are, you’ve had the distinct privilege of paying an “Advertising and Promotion” or A&P tax that are imposed by many local governments in Arkansas.
These taxes are locally-imposed taxes on “prepared” food and/or short-term rentals (including hotels and meeting spaces). All across the state, from Fayetteville to Little Rock to Hot Springs, more than one in three Arkansans live in a city with A&P taxes.
While proponents of these taxes are quick to frame them as “pro-economic development” because the dollars are set aside for “advertising and promotion” of local cities and counties, in reality, A&P taxes are a punishment on Arkansans who choose to support local small businesses, particularly low-income folks.
By extension, A&P taxes are a punishment on small businesses themselves. Sure, businesses pass the costs on to consumers, but these taxes arbitrarily raise their prices and hurt mom-and-pops all over our state.
The tax rates can range from 1 percent to 3 percent. In some cases, state law also allows the tax rate on short-term lodging to be raised as high as 4 percent. The city of Little Rock, for example, is currently taking advantage of this loophole.
A&P funds have been riddled with waste and abuse for years. For example, the city of Conway spent $130,000 on a faulty Christmas tree. Not only did they waste the funds, they defended it in part by suggesting that they had so much excess A&P funding, they had nothing better to spend it on.
And of course A&P taxes do not replace other sales taxes. They are simply layered on top.
Consider a shopper Rogers, Arkansas. If someone decides to stay the night in this great community and support the local Arkansas economy, they will pay:
That’s a total of 14.5 percent sales tax. On a $250 hotel bill, that’s an extra $36.25.
It’s not just tourists paying the price: it’s everyday Arkansans when they dine out with their families, plan a night away with loved ones, and support Arkansas small businesses.
The A&P food tax is also an administrative nightmare for local business owners. What counts as prepared food? A bag of raw chicken at the grocery store isn’t taxed; but a rotisserie chicken is.
A cup of coffee is taxed, but a bag of coffee beans is not.
Whole fruit? Untaxed. Cut up and put into a cup? Taxed.
What about a bag of coffee beans that a customer grinds in the store themselves? Is that “prepared” food or not?
You get the picture. It’s a nightmare, and not one Arkansas small business owners should be having to deal with.
Local governments are getting rich off these food and lodging taxes. In 2021, more than two-thirds of Arkansas cities with A&P taxes reported a revenue increase relative to pre-pandemic levels. In some towns, like Eureka Springs, revenues shot up by more than 23 percent.
When compared to depressed pandemic-level revenues, recent collections are even more astonishing, like the more than 50 percent spike seen in Fort Smith.
This is all at a time while Arkansans are dealing with record inflation and grocery costs that have soared by nearly 15 percent.
While it may be difficult for the legislature to completely unwind A&P taxes at this point, at minimum they should:
Arkansans–particularly our low-income neighbors–are struggling under record inflation while cities and counties are getting rich. It’s time to restore some commonsense.